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What is Cloud Mining?
Cloud mining is the process of mining cryptocurrencies like Bitcoin using rented computing power from service providers.
Unlike solo mining, which requires an upfront investment in hardware mining gear, cloud miners can lease these resources for a small fee.
In return, the investor shares in the crypto incentives the company generates every time a block is added to the network.
Techopedia Explains
This approach allows users to participate in crypto mining operations remotely, eliminating the complexities of running a mining rig 24/7 and the associated costs.
Due to the total lack of control of the mining process and rewards, cloud mining is often targeted at rookie miners.
There are numerous advantages to cloud mining. Firstly, it makes crypto mining more accessible. Anyone with a cloud mining contract with the service provider can earn crypto rewards.
In addition, cloud mining is also cheaper and simpler to set up – especially for investors with little to no technical knowledge.
To get started, users only need to register with a cloud mining operator (often a third-party provider), select how much hash power (computing resource) they want to acquire, specify the crypto asset, and proceed.
From every successful mining operation, the block reward is then shared by both the user and the mining firm based on an agreed-upon sharing formula.
How Does Cloud Mining Work?
Cryptocurrency mining often requires significant time and resources for validating transactions. Often, the fastest mining rig to solve a complex cryptographic puzzle is the one that gets the associated block reward.
However, with the escalating mining difficulty, obtaining block rewards for major cryptocurrencies like Bitcoin largely depends on the power of the hardware at your disposal. The cost of these hardware devices can amount to millions of dollars.
Cloud mining provides a solution, allowing retail and hobby miners to validate transactions on their preferred blockchain networks without incurring massive financial investments.
Below are the steps of the cloud mining process.
1. Select a Cloud Mining Firm
The first step is to choose a cloud mining platform to use. With numerous options available, it can take time to identify the most suitable one.
However, several factors must be considered when selecting a cloud mining firm. These include:
- Transparency
- Supported crypto assets
- Security measures
- Mining contracts and pricing
- Mining pools
- Obtainable rewards.
The contracts are crucial as they will serve as the foundation of your relationship with the cloud mining company.
Additionally, visiting the company’s website and verifying its regulatory status in the operating region is considered best practice.
2. Create a Crypto Wallet
This step holds significant importance. Crypto wallets store digital assets generated through the cloud mining process.
However, the choice of a crypto wallet should align with the specific asset being mined. Given this, only create a Bitcoin crypto wallet if the anticipated block rewards are in BTC.
This principle extends to Litecoin, Bitcoin Cash, and any other virtual asset a cloud mining company allows you to validate remotely.
3. Select a Mining Package
After completing the registration and onboarding process, the subsequent step is to choose a mining package.
The cost of these packages typically hinges on the selected hash power and the chosen crypto asset. Consequently, opting for a high hash power to mine BTC, for instance, can result in a significant cost ranging from hundreds to thousands of dollars.
Selecting a package that aligns with your comfort level is the best approach.
4. Make Payment
The next step involves making payment for the selected mining package. Since crypto assets are mined remotely, most cloud mining service providers often opt for crypto payments.
However, a select few may provide a fiat payment option for a more inclusive experience. Choose your preferred method and complete the necessary payments to activate the package.
5. Commence Mining
Once the payment is made, the mining process will commence automatically. The cloud mining company configures the needed hardware, maintains it, and allocates your processing hash power toward mining new crypto assets.
6. Get Mining Rewards
The final process is the block rewards distribution. The distribution of crypto rewards is often done pro rata, meaning the amount of hash power a user rents determines how much of the block reward they earn from the mining pool.
These rewards are then forwarded directly to the user’s crypto wallet, where the digital assets can then be withdrawn for use.
Types of Cloud Mining
Cloud mining comes in two distinct forms: hosted and leased cloud mining.
- Hosted Cloud Mining
This is the most common cloud mining model. This model allows customers to purchase or lease mining equipment and set it up at the service provider’s facility.
The customer can customize the full operation of the hardware, while the service provider is tasked with maintaining this equipment and ensuring it works optimally.
Hosted mining reduces the overhead costs of running a mining operation as the cloud mining company handles the entire operational side. This enables customers to retain complete control over equipment optimization and resulting benefits.
- Leased Cloud Mining
An alternative option is the leased cloud mining model, where a user leases a specific amount of computing resources, otherwise known as the hash power.
This model provides the advantage of not having to cover the costs associated with hardware purchase, maintenance, or power. However, the block rewards earned are predominantly influenced by the hash power the customer acquires.
Unlike the hosted model, leased cloud mining does not grant direct control over the earned block rewards, as they are distributed between the cloud mining firm and the user.
Advantages of Cloud Mining
Cloud mining offers several notable benefits, especially for those seeking passive income from crypto assets. Here are some of the key advantages:
Advantages
Description
No Technical Expertise Required
Cloud mining is accessible to everyone, as it does not require technical knowledge to get started. The cloud mining firm takes care of all the technical aspects while customers buy or rent mining facilities to remotely verify transactions.
Zero Upfront Investments
Solo mining comes with several running costs. You need ample space, a proper ventilation system, trained personnel, software, and others. Cloud mining eliminates all these running costs, allowing you to access all of the benefits of mining without any significant upfront cost.
Cut Down on Power Expenses
Mining operations run continuously, consuming large kilowatts of power over months and years. Cloud mining addresses this concern by managing your power requirements, allowing you to enjoy the rewards without incurring additional power costs.
Passive Income Avenue
Cloud mining can help diversify your wealth creation efforts. As a result of this method, customers can sign up for contracts and sit back while accumulating returns. This makes cloud mining a valuable mechanism for generating passive income.
Risks Inherent in Cloud Mining
Cloud mining has its drawbacks. Here are some of the risks associated with it:
Risks
Description
Scams and Fraudulent Operations
The entire crypto ecosystem is still uncharted territory, and cloud mining is one such. The space is rife with scams and fraudulent mining firms that take customers’ deposits without providing the promised service. Hence, due diligence is crucial to avoid falling victim to such scams.
Lower Profits
Achieving consistent profitability with cloud mining contracts is challenging. This is due to the huge overhead costs, increased competition, and difficulty in mining profitable coins like Bitcoin. All in all, you should expect low returns.
Market Volatility
Crypto assets are generally volatile, which means their price can drastically reduce in a downturn. Hence, in the event of a broader market collapse, the value of your block rewards may substantially diminish.
The Bottom Line
Cloud mining provides an inclusive avenue for anyone to earn and participate in the crypto ecosystem. By entrusting the intricacies of mining to well-established businesses, users can secure passive income and contribute to the ongoing security of blockchain networks.
However, navigating cloud mining is not without its challenges. Instances of users losing funds to fraudulent operations serve as a stark reminder of potential pitfalls.
Additionally, the inherent volatility of crypto assets can impact the value of earned assets. Furthermore, the slowly emerging regulatory landscape adds another layer of complexity.
As a result, conducting thorough research is important to make informed decisions about whether cloud mining is something you should pay close attention to.
